Energy and Clean Technology Alert: "Grants in Lieu of Tax Credits" - New Guidance on Eligibility and How To Apply

The American Recovery and Reinvestment Act of 2009 (ARRA) expanded tax incentives for the renewable energy sector in several ways. One significant change under Section 1603 of the ARRA allows taxpayers to receive a cash grant (a “Section 1603 grant”) in lieu of Section 45 production tax credits (PTC) or Section 48 investment tax credits (ITC) for investment in certain renewable energy property. On July 9, 2009, the Treasury Department issued important guidance regarding eligibility and how to apply for Section 1603 grants.

Energy and Clean Technology Alert: "Grants in Lieu of Tax Credits" -New Guidance on Eligibility and How To Apply 7/16/2009 The American Recovery and Reinvestment Act of 2009 (ARRA) expanded tax incentives for the renewable energy sector in several ways. One significant change under Section 1603 of the ARRA allows taxpayers to receive a cash grant (a “Section 1603 grant”) in lieu of Section 45 production tax credits (PTC) or Section 48 investment tax credits (ITC) for investment in certain renewable energy property. On July 9, 2009, the Treasury Department issued important guidance regarding eligibility and how to apply for Section 1603 grants. Who is Eligible for a Grant? Subject to some exceptions, Section 1603 grants are available to any person, whether individual or entity, who is the original user of “specified energy property” (see below). The original user may be the first owner of the property, or under some circumstances, a lessee. Some persons, however, are not eligible for a Section 1603 grant: Federal, state, or local governments Tax-exempt organizations Clean renewable energy bond lenders, cooperative electric companies, or governmental bodies Partnerships or other pass-through entities having an equity owner who is described above, unless the ineligible person owns its interest through a C corporation Foreign persons or entities, unless more than 50% of the foreign person or entity’s gross income derived from the specified energy property is subject to U.S. federal income tax Grants for What? How Much? By When? “Specified energy property” for a Section 1603 grant is energy property otherwise eligible for ITC, including “PTC-type” property that can now elect ITC. The amount of the grant is the same amount otherwise available under ITC, which is 30% of the cost of most projects and 10% of the cost of others (see table below). Receiving a Section 1603 grant is subject to certain project deadlines. Construction must begin by the end of 2010. If construction began before 2009, the property must be placed in service by the end of 2010. If construction begins in 2009 or 2010, the property must be placed in service by the dates listed in the table below. Energy and Clean Technology Alert: "Grants in Lieu of Tax Credits" -New Guidance on Eligibility and How To Apply 7/16/2009 The American Recovery and Reinvestment Act of 2009 (ARRA) expanded tax incentives for the renewable energy sector in several ways. One significant change under Section 1603 of the ARRA allows taxpayers to receive a cash grant (a “Section 1603 grant”) in lieu of Section 45 production tax credits (PTC) or Section 48 investment tax credits (ITC) for investment in certain renewable energy property. On July 9, 2009, the Treasury Department issued important guidance regarding eligibility and how to apply for Section 1603 grants. Who is Eligible for a Grant? Subject to some exceptions, Section 1603 grants are available to any person, whether individual or entity, who is the original user of “specified energy property” (see below). The original user may be the first owner of the property, or under some circumstances, a lessee. Some persons, however, are not eligible for a Section 1603 grant: Federal, state, or local governments Tax-exempt organizations Clean renewable energy bond lenders, cooperative electric companies, or governmental bodies Partnerships or other pass-through entities having an equity owner who is described above, unless the ineligible person owns its interest through a C corporation Foreign persons or entities, unless more than 50% of the foreign person or entity’s gross income derived from the specified energy property is subject to U.S. federal income tax Grants for What? How Much? By When? “Specified energy property” for a Section 1603 grant is energy property otherwise eligible for ITC, including “PTC-type” property that can now elect ITC. The amount of the grant is the same amount otherwise available under ITC, which is 30% of the cost of most projects and 10% of the cost of others (see table below). Receiving a Section 1603 grant is subject to certain project deadlines. Construction must begin by the end of 2010. If construction began before 2009, the property must be placed in service by the end of 2010. If construction begins in 2009 or 2010, the property must be placed in service by the dates listed in the table below. Document hosted at http://www.jdsupra.com/post/documentViewer.aspx?fid=88d60ec7-3e4f-48b7-b03d-baf639f00216“Construction begins” on a property when “physical work of a significant nature” begins, either directly by the owner or on the owner’s behalf by a third party under a written binding contract. Preliminary activities, such as planning, designing, or securing financing, do not constitute physical work. Generally speaking, property is “placed in service” when it is ready and available for its intended use, i.e., the project is substantially complete and ready to produce energy. The table below summarizes the types of property eligible for a Section 1603 grant, the placed-in-service deadline if construction begins in 2009 or 2010, and the amount of the grant as a percentage of cost. Specified Energy Property Placed-in-Service Deadline if Construction Begins in 2009 or 2010 Amount of Credit as a Percentage of Cost “Original” ITC Property Solar Energy Property Dec. 31, 2016 30% Geothermal Energy Property Dec. 31, 2016 10% Qualified Fuel Cell Energy Property Dec. 31, 2016 30% Qualified Microturbine Energy Property Dec. 31, 2016 10% Combined Heat & Power System Energy Property Dec. 31, 2016 10% Qualified Small Wind Energy Property Dec. 31, 2016 30% Geothermal Heat Pump Property Dec. 31, 2016 10% “PTC-Type” Property Eligible for ITC Election Wind Facility Dec. 31, 2012 30% Closed-Loop Dec. 31, 2013 30% “Construction begins” on a property when “physical work of a significant nature” begins, either directly by the owner or on the owner’s behalf by a third party under a written binding contract. Preliminary activities, such as planning, designing, or securing financing, do not constitute physical work. Generally speaking, property is “placed in service” when it is ready and available for its intended use, i.e., the project is substantially complete and ready to produce energy. The table below summarizes the types of property eligible for a Section 1603 grant, the placedin-service deadline if construction begins in 2009 or 2010, and the amount of the grant as a percentage of cost. Placed-in-Service Amount Deadline if of Credit as Construction a Specified Begins in 2009 or Percentage Energy Property 2010 of Cost “Original” ITC Property Solar Energy Property Dec. 31, 2016 30% Geothermal Energy Property Dec. 31, 2016 10% Qualified Fuel Cell Energy Property Dec. 31, 2016 30% Qualified Microturbine Energy Property Dec. 31, 2016 10% Combined Heat & Power System Energy Property Dec. 31, 2016 10% Qualified Small Wind Energy Property Dec. 31, 2016 30% Geothermal Heat Pump Property Dec. 31, 2016 10% “PTC-Type” Property Eligible for ITC Election Wind Facility Dec. 31, 2012 30% Dec. 31, 2013 30% Closed-Loop Document hosted at http://www.jdsupra.com/post/documentViewer.aspx?fid=88d60ec7-3e4f-48b7-b03d-baf639f00216Biomass Facility Open-Loop Biomass Facility Dec. 31, 2013 30% Geothermal Facility 30% Landfill Gas Facility Dec. 31, 2013 30% Trash Facility Dec. 31, 2013 30% Hydropower Facility Dec. 31, 2013 30% Marine & Hydrokinetic Facility Dec. 31, 2013 30% How To Apply for a Grant and Receive Payment Taxpayers can apply for a Section 1603 grant online at www.treasury.gov/recovery beginning on or about August 1. For eligible projects placed in service in 2009 or 2010, applications must be submitted after the project has been placed in service, but before October 1, 2011. For eligible projects placed in service after 2010 and by the applicable placed-in-service deadline, applications must be submitted after construction has begun but before October 1, 2011. Treasury will review completed applications and make payments to qualified applicants within 60 days following the later of (i) the date of the completed application, or (ii) the date the eligible project is placed in service. Completed applications must include the following: A signed and completed application form Supporting documentation demonstrating that the property has been placed in service (or construction began) within the required time period and that the property meets the applicable requirements for PTC or ITC Signed Terms and Conditions Detailed payment information to support the cost basis claimed for the property (including an independent accountant’s certification for property costing more than $500,000) Section 1603 grants are subject to similar inclusion and recapture rules applicable to ITC. Accordingly, a Section 1603 grant is not included in the recipient’s gross income, but will reduce the property’s basis by 50% of the grant amount. If a grant recipient transfers the property to an ineligible person or if the property ceases to qualify for the grant within five years from the date the property is first placed in service, the grant must be repaid in proportion to its length of service (i.e., 80% of the grant must be repaid after one year, 60% after two years, etc.). But, unlike ITC, transferring the property to an eligible person will not trigger recapture, provided the Biomass Facility Open-Loop Biomass Facility Dec. 31, 2013 30% Geothermal Facility 30% Landfill Gas Facility Dec. 31, 2013 30% Trash Facility Dec. 31, 2013 30% Hydropower Facility Dec. 31, 2013 30% Marine & Hydrokinetic Facility Dec. 31, 2013 30% How To Apply for a Grant and Receive Payment Taxpayers can apply for a Section 1603 grant online at www.treasury.gov/recovery beginning on or about August 1. For eligible projects placed in service in 2009 or 2010, applications must be submitted after the project has been placed in service, but before October 1, 2011. For eligible projects placed in service after 2010 and by the applicable placed-in-service deadline, applications must be submitted after construction has begun but before October 1, 2011. Treasury will review completed applications and make payments to qualified applicants within 60 days following the later of (i) the date of the completed application, or (ii) the date the eligible project is placed in service. Completed applications must include the following: A signed and completed application form Supporting documentation demonstrating that the property has been placed in service (or construction began) within the required time period and that the property meets the applicable requirements for PTC or ITC Signed Terms and Conditions Detailed payment information to support the cost basis claimed for the property (including an independent accountant’s certification for property costing more than $500,000) Section 1603 grants are subject to similar inclusion and recapture rules applicable to ITC. Accordingly, a Section 1603 grant is not included in the recipient’s gross income, but will reduce the property’s basis by 50% of the grant amount. If a grant recipient transfers the property to an ineligible person or if the property ceases to qualify for the grant within five years from the date the property is first placed in service, the grant must be repaid in proportion to its length of service (i.e., 80% of the grant must be repaid after one year, 60% after two years, etc.). But, unlike ITC, transferring the property to an eligible person will not trigger recapture, provided the Document hosted at http://www.jdsupra.com/post/documentViewer.aspx?fid=88d60ec7-3e4f-48b7-b03d-baf639f00216property continues to qualify as specified energy property and the purchaser agrees to be jointly liable with the applicant for any recapture. Further Tax Guidance Expected Affecting Renewable Energy Our Energy and Clean Technology group is currently awaiting additional tax-related guidance arising from the ARRA. New Section 48C established a “manufacturing credit” equal to 30% of the cost of personal property and fixtures to outfit a facility that manufactures renewable energy-related products. Unlike the Section 1603 grant, available manufacturing credits are limited to $2.3 billion and taxpayers must apply and be approved for a discretionary allocation. Guidance on the manufacturing credit, including the application process, is expected in August 2009. Of course, we are monitoring these issues closely and will update our clients and friends as developments arise. If you have any questions about the new regulations or the regulatory process, please call your Mintz Levin service professional or any of those listed below. BOSTON Thomas R. Burton III Chair, Energy and Clean Technology (617) 348-3097 TRBurton@mintz.com Richard A. Kanoff Energy Regulatory and Project Development (617) 348-3070 RAKanoff@mintz.com David L. O’Connor Senior Vice President for Energy and Clean Technology, ML Strategies (617) 348-4418 DOConnor@mlstrategies.com Patrick J. Kealy Corporate (617) 348-1679 PJKealy@mintz.com property continues to qualify as specified energy property and the purchaser agrees to be jointly liable with the applicant for any recapture. Further Tax Guidance Expected Affecting Renewable Energy Our Energy and Clean Technology group is currently awaiting additional tax-related guidance arising from the ARRA. New Section 48C established a “manufacturing credit” equal to 30% of the cost of personal property and fixtures to outfit a facility that manufactures renewable energyrelated products. Unlike the Section 1603 grant, available manufacturing credits are limited to $2.3 billion and taxpayers must apply and be approved for a discretionary allocation. Guidance on the manufacturing credit, including the application process, is expected in August 2009. Of course, we are monitoring these issues closely and will update our clients and friends as developments arise. If you have any questions about the new regulations or the regulatory process, please call your Mintz Levin service professional or any of those listed below. BOSTON Thomas R. Burton III Chair, Energy and Clean Technology (617) 348-3097 TRBurton@mintz.com Richard A. Kanoff Energy Regulatory and Project Development (617) 348-3070 RAKanoff@mintz.com David L. O’Connor Senior Vice President for Energy and Clean Technology, ML Strategies (617) 348-4418 DOConnor@mlstrategies.com Patrick J. Kealy Corporate (617) 348-1679 PJKealy@mintz.com Document hosted at http://www.jdsupra.com/post/documentViewer.aspx?fid=88d60ec7-3e4f-48b7-b03d-baf639f00216Sahir C. Surmeli Corporate (617) 348-3013 SSurmeli@mintz.com Travis L. Blais Tax Law (617) 348-1684 TLLBlais@mintz.com Evan M. Bienstock Corporate (617) 348-3090 EMBienstock@mintz.com Ralph A. Child Environmental (617) 348-3021 RChild@mintz.com Jonathan M. Cosco Real Estate (617) 348-4727 JMCosco@mintz.com David F. Crosby Intellectual Property (617) 348-1830 DFCrosby@mintz.com Kevin Fay Corporate, Immigration (617) 348-1625 KFay@mintz.com Irwin M. Heller Corporate (617) 348-1654 IHeller@mintz.com Katherine Comer Holliday Corporate (617) 348-1796 KHolliday@mintz.com Sahir C. Surmeli Corporate (617) 348-3013 SSurmeli@mintz.com Travis L. Blais Tax Law (617) 348-1684 TLLBlais@mintz.com Evan M. Bienstock Corporate (617) 348-3090 EMBienstock@mintz.com Ralph A. Child Environmental (617) 348-3021 RChild@mintz.com Jonathan M. Cosco Real Estate (617) 348-4727 JMCosco@mintz.com David F. Crosby Intellectual Property (617) 348-1830 DFCrosby@mintz.com Kevin Fay Corporate, Immigration (617) 348-1625 KFay@mintz.com Irwin M. Heller Corporate (617) 348-1654 IHeller@mintz.com Katherine Comer Holliday Corporate (617) 348-1796 KHolliday@mintz.com Document hosted at http://www.jdsupra.com/post/documentViewer.aspx?fid=88d60ec7-3e4f-48b7-b03d-baf639f00216Jonathan L. Kravetz Chair, Securities Practice Group (617) 348-1674 JLKravetz@mintz.com Cynthia J. Larose Corporate (617) 348-1732 CJLarose@mintz.com Jeffrey R. Porter Environmental (617) 348-1711 JPorter@mintz.com Paul Scapicchio Senior Vice President of Government Relations, ML Strategies (617) 348-3031 PJScapicchio@mlstrategies.com Stanley A. Twarog Corporate (617) 348-1749 STwarog@mintz.com Paula J. Valencia-Galbraith Corporate (617) 210-6854 PVGalbraith@mintz.com WASHINGTON, D.C. David P. Dutil Corporate (202) 434-7425 DDutil@mintz.com David J. Leiter Senior Executive Vice President of Government Relations, ML Strategies (202) 434-7346 DJLeiter@mlstrategies.com Chuck A. Samuels Federal/Energy Efficiency Jonathan L. Kravetz Chair, Securities Practice Group (617) 348-1674 JLKravetz@mintz.com Cynthia J. Larose Corporate (617) 348-1732 CJLarose@mintz.com Jeffrey R. Porter Environmental (617) 348-1711 JPorter@mintz.com Paul Scapicchio Senior Vice President of Government Relations, ML Strategies (617) 348-3031 PJScapicchio@mlstrategies.com Stanley A. Twarog Corporate (617) 348-1749 STwarog@mintz.com Paula J. Valencia-Galbraith Corporate (617) 210-6854 PVGalbraith@mintz.com WASHINGTON, D.C. David P. Dutil Corporate (202) 434-7425 DDutil@mintz.com David J. Leiter Senior Executive Vice President of Government Relations, ML Strategies (202) 434-7346 DJLeiter@mlstrategies.com Chuck A. Samuels Federal/Energy Efficiency Document hosted at http://www.jdsupra.com/post/documentViewer.aspx?fid=88d60ec7-3e4f-48b7-b03d-baf639f00216(202) 434-7311 CASamuels@mintz.com Maureen J. Walsh Director of Federal Government Relations, ML Strategies (202) 434-7388 MJWalsh@mlstrategies.com NEW YORK Faith L. Charles Corporate (212) 692-6770 FLCharles@mintz.com Daniel I. DeWolf Co-Chair, Venture Capital and Emerging Companies (212) 692-6223 DDeWolf@mintz.com Jeffrey A. Moerdler Real Estate, Communications, Environmental (212) 692-6700 JAMoerdler@mintz.com Peter B. Zlotnick Litigation (212) 692-6887 PBZlotnick@mintz.com PALO ALTO Brady Berg Corporate (650) 251-7758 BBerg@mintz.com Gabriel Schnitzler Real Estate (650) 251-7720 GSchnitzler@mintz.com (202) 434-7311 CASamuels@mintz.com Maureen J. Walsh Director of Federal Government Relations, ML Strategies (202) 434-7388 MJWalsh@mlstrategies.com NEW YORK Faith L. Charles Corporate (212) 692-6770 FLCharles@mintz.com Daniel I. DeWolf Co-Chair, Venture Capital and Emerging Companies (212) 692-6223 DDeWolf@mintz.com Jeffrey A. Moerdler Real Estate, Communications, Environmental (212) 692-6700 JAMoerdler@mintz.com Peter B. Zlotnick Litigation (212) 692-6887 PBZlotnick@mintz.com PALO ALTO Brady Berg Corporate (650) 251-7758 BBerg@mintz.com Gabriel Schnitzler Real Estate (650) 251-7720 GSchnitzler@mintz.com Document hosted at http://www.jdsupra.com/post/documentViewer.aspx?fid=88d60ec7-3e4f-48b7-b03d-baf639f00216SAN DIEGO Jeremy D. Glaser Corporate (858) 314-1515 JDGlaser@mintz.com Jeremy B. Hayden Corporate (858) 314-1524 JBHayden@mintz.com Carl A. Kukkonen III Intellectual Property (858) 314-1535 CAKukkonen@mintz.com Michael D. Van Loy, Ph.D. Intellectual Property (858) 314-1559 MDVanLoy@mintz.com Scott C. White Corporate (858) 314-1511 SCWhite@mintz.com LONDON Julian Crump Intellectual Property +44 (0) 20 7776 7302 JCrump@mintz.com Susan L. Foster, Ph.D. Corporate +44 (0) 20 7776 7330 SFoster@mintz.com SAN DIEGO Jeremy D. Glaser Corporate (858) 314-1515 JDGlaser@mintz.com Jeremy B. Hayden Corporate (858) 314-1524 JBHayden@mintz.com Carl A. Kukkonen III Intellectual Property (858) 314-1535 CAKukkonen@mintz.com Michael D. Van Loy, Ph.D. Intellectual Property (858) 314-1559 MDVanLoy@mintz.com Scott C. White Corporate (858) 314-1511 SCWhite@mintz.com LONDON Julian Crump Intellectual Property +44 (0) 20 7776 7302 JCrump@mintz.com Susan L. Foster, Ph.D. Corporate +44 (0) 20 7776 7330 SFoster@mintz.com Document hosted at http://www.jdsupra.com/post/documentViewer.aspx?fid=88d60ec7-3e4f-48b7-b03d-baf639f00216

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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